How DraftKings Stayed Competitive in a World Without Sports
Here’s why investors are bullish on a fantasy sports betting company that went public when sports and casinos were shut down
It was a little over a month after the NBA season and NCAA tournament had been canceled due to the coronavirus pandemic. Spring training had been delayed, and the entire 2020 Major League Baseball season was in jeopardy. Despite all this, fantasy sports giant DraftKings went public in late April in a deal valued at $2.7 billion. The Boston-based company, founded in 2012, is part of a growing list of companies that have eschewed the traditional IPO and gone public via a reverse merger with a special purpose acquisition company (or SPAC), which is essentially a blank check shell company.
Since then, the company has managed to hang on. In the second quarter, DraftKings’ revenue rose to $70.9 million, compared to $57.4 million the prior year (although revenue was down 9.6% year over year if you don’t include its acquisitions, including the SPAC merger). Meanwhile, the stock price has risen more than 80% since the company went public in April, from $19 to $35 (as of market close on August 21). How did DraftKings survive in a world without sports? The answer has to do with gambling laws, day traders, and a bit of ingenuity.
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Shifts in gambling laws
With over 8 million registered users, DraftKings focuses on daily fantasy sports, a supercharged version of traditional fantasy sports: Instead of picking a team and tracking them over the course of a season, consumers make daily bets on individual players and teams’ performance and can cash out on an immediate basis. This is a hyperactive, hyper-addictive form of fantasy sports, much closer to gambling than to traditional fantasy sports, where payouts only occur at the end of the season.
DraftKings took a legal activity, made it as similar as possible to a very…